Question

You attended the inventory count of your client Davis Hydraulics Ltd. You observed the following during the count.

1. Warehouse staff counted specific areas of the stock as determined by the warehouse supervisor; staff members, including the warehouse supervisor, were allocated their own area to count.

2. Several blank paper sheets were issued to count staff for recording stock counted.

3. Staff were instructed to write down the stock description and number counted.

4. Staff were told to write the stock quantities in pencil on the sheets to ensure errors can be

   corrected.

5. Any staff that completed a section early were allocated to another area to help out one of the

   other staff.

6. The supervisor collected all sheets at the end of the count to finalise the stock count

   REQUIRED:
   (a) List the procedures that should be adopted in a physical inventory count .

   (b) Identify the weaknesses (at least 5) in the stocktake procedures above and identify how they could be improved .

Answer 1

(a) Procedures for physical counting of inventory.

1. Prepare a plan : Choose the interval for inventory counting, whether it should be done quarterly, monthly or yearly, and also choose the place, date and time.

2. Give proper training to the counting staff.

3. Categorize the items you need to count.

4. Identify the items counted with a mark or tag, so that it will not be counted again.

5. Make sure more than one person is double checking to avoid clerical mistakes.

(b) Weaknesses in the Davis Hydraulics Ltd

1) The staff and the supervisor are allowed to choose their own area.

2) The counted inventories are marked in a piece of paper.

3) Staffs were instructed to count the numbers counted by themselves.

4) Staff recording there counting in pencil.

5) Staff are allowed to move to other counting area after their section.

Procedures to overcome the weaknesses

1) The area of counting should be chosen by a manager other the warehouse supervisor, and preferably employees working in inventory department should be avoided from the physical counting

2)The counted inventory should be properly marked and keep to a different place so that once counted inventory will not be counted again.

3) There should be proper internal control to verify whether the staffs are recording there counting correctly.

4) The stocks should be recorded in marker or pen, so if they manipulate it when the supervisor is away can be identified by the initial mark.

5) No staff should be moved to other section after their counting, because they can influence other staffs to manipulate the records.